U.S. v. Read

• Decision Date: 09 September 1981
• Docket Number: Nos. 80-1017,s. 80-1017
• Parties: Fed. Sec. L. Rep. P 98,284 UNITED STATES of America, Plaintiff-Appellee, v. Ralph READ, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Ronald SPIEGEL, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Howard SWIGER, Defendant-Appellant. to 80-1019.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1225

658 F.2d 1225

Fed. Sec. L. Rep. P 98,284

UNITED STATES of America, Plaintiff-Appellee, v. Ralph READ, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Ronald SPIEGEL, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Howard SWIGER, Defendant-Appellant.

Nos. 80-1017 to 80-1019.

United States Court of Appeals Seventh Circuit.

Argued Oct. 20, 1980.

Decided Sept. 9, 1981. ^*

Lawrence M. Gavin, Edward L. Foote, Lawrence J. Suffredin, Chicago, Ill., for defendant-appellant.

Keith Syfert, Asst. U. S. Atty., Chicago, Ill., for plaintiff-appellee.

Before CUMMINGS and BAUER, Circuit Judges, and TEMPLAR, Senior District Judge. ^**

BAUER, Circuit Judge.

Defendants-appellants Ralph Read, Ronald E. Spiegel, and Howard Swiger appeal their convictions for conspiracy, mail fraud, and securities fraud. We affirm the judgments of conviction entered for Ralph Read and Howard Swiger in Nos. 80-1017 and 80-1019. We reverse Ronald Spiegel's conviction for conspiracy in No. 80-1018 and remand for a new trial. We affirm Spiegel's conviction on the substantive counts.

I

The indictment charged a scheme to artificially inflate the year-end inventory of Cenco Medical Health Supply Corporation ("CMH") and thus increase its reported profits. The defendants-appellants were officers of CMH and Cenco, CMH's parent corporation. Ralph Read was president of Cenco and a member of its board of directors; Ronald Spiegel was a vice-president of Cenco, and president of CMH; Howard Swiger was also a vice-president of Cenco and comptroller of CMH. Other defendants Russell Rabjohns, Bernard Magdovitz and Jack Carlson pled guilty to two counts and testified for the government. Another defendant, Robert Smith, was acquitted.

We need only briefly outline the evidence at trial showing defendants' massive manipulation of CMH's finances from 1970 to 1975. The greatest amount of the fraud was accomplished by overstating CMH's inventory. During annual inventory, each CMH branch recorded the amount of every item in stock on computer cards. When the cards were returned to the central Chicago office for processing, some of the defendants, at Spiegel's direction, increased the numbers on the cards. Thousands of cards were altered in this fashion; defendants made additional changes in the computer listings of the inventory that CMH submitted to its auditors. In 1970, defendants increased the reported inventory of CMH by 3.5 million dollars. In each succeeding year, defendants increased the inventory by several millions more and carried the previous years' inflation forward. The overstatement of inventory decreased CMH's cost of sales, which in turn produced greater reported profits, dollar-for-dollar. This practice continued until 1975. Estimates of the total fraud ranged from 20 to 25 million dollars.

Other methods included inflating profits by accruing sales in one year and deferring expenses for those sales until the next fiscal year. The defendants also increased reported sales by listing the sales from August 1972 on computer printouts for March 1973 sales. They also created fake documents showing hundreds of thousands of dollars of non-existent inventory to be in transit between warehouses so that it could not be physically counted.

In 1974, Curtiss-Wright Corporation, a large conglomerate, purchased five percent of Cenco's shares. Curtiss-Wright's accountants, while examining Cenco's finances for a possible loan, found discrepancies in Cenco's inventory records. Alarmed, the defendants sought to create the appearance of $10 million of non-existent inventory should Curtiss-Wright's auditors physically check the inventory. In order to do so, they ordered the repacking of obsolete inventory in boxes of expensive products. Finally, in 1975, the defendants implemented an inventory destruction program to cover up the fraud. The defendants persuaded Cenco's board of directors to approve the destruction of $16 million of obsolete inventory as part of a supposed tax savings program. Almost all of the "destroyed" inventory existed only on paper.

The ultimate result of the fraud was to overstate the profitability of Cenco, thereby defrauding its board, its stockholders, and the SEC. The prosecution also showed that Read's compensation was linked to the company's profits.

The indictment charged the defendants with conspiracy, mail fraud, and securities fraud. ¹ On September 6, 1979, the case proceeded to trial against Read, Spiegel, Swiger, and Smith. On October 29, 1979, following almost eight weeks of testimony, the jury returned guilty verdicts on all counts as to Read, Spiegel, and Swiger. Smith was acquitted. Read, Spiegel, and Swiger appeal their convictions.

II

All appellants charge that the evidence at trial proved multiple conspiracies, not the single conspiracy charged in the indictment. They claim they were prejudiced by this variance between the indictment and proof. We find that the evidence showed a single conspiracy.

The problem of single or multiple conspiracies relates to the scope of the conspiracy in which the defendant is involved. "If there is one overall agreement among the various parties to perform different functions in order to carry out the objectives of the conspiracy, the agreement among all the parties constitutes a single conspiracy." United States v. Varelli, 407 F.2d 735, 742 (7th Cir. 1969).

On the other hand, if the evidence shows more than one agreement, directed at different goals, a single conspiracy has not been shown. If a single conspiracy is alleged but several conspiracies are proven, a variance between the indictment and proof is shown. If the variance prejudices the substantial rights of a defendant for example by surprise, transference of guilt by substantial evidence of crimes unrelated to the defendant, or double jeopardy the defendant must be acquitted. Kotteakos v. United States, 328 U.S. 750, 774, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946); Berger v. United States, 295 U.S. 78, 82, 55 S.Ct. 629, 79 L.Ed. 1314 (1935). If the evidence, however, shows that one of the conspiracies proven is the conspiracy alleged in the indictment, the defendant's conviction can stand. United States v. Papia, 560 F.2d 827, 838-39 (7th Cir. 1977). The jury here was cautioned, as we recommended in Papia, id. at 838, that it could not convict a defendant of conspiracy if it found that the proof did not show the single conspiracy charged in the indictment.

Each appellant claims that he was not involved in one or more parts of the conspiracy to manipulate Cenco's finances. The manufacturing and inventory destruction schemes were planned and executed after Spiegel and Swiger left Cenco, and, they claim, after they left the conspiracy. Since they did not agree to or condone the operations, Spiegel asserts these "cover-up" plans were a separate conspiracy among the remaining defendants. Read, in contrast, claims he cannot be held liable for the inventory inflation scheme because he learned of it only in 1974, after it was almost over. The evidence also showed that several defendants received kickbacks from Rose Packaging Company, the firm which packaged the bogus inventory. None of the appellants received kickbacks, and they claim the kickback scheme constituted a separate conspiracy. We disagree.

Appellants do not dispute their agreement to the common goal charged in the indictment to "manipulate and falsely report and cause to be manipulated and falsely reported financial information, including profit figures, of Cenco and its subsidiaries." Indictment P 14. Appellants' objections concern only their participation in the various activities of the conspiracy. Each defendant, however, need not agree to or participate in every step of the conspiracy. Each conspirator is liable for overt acts of every other conspirator done in furtherance of the conspiracy, whether the acts occurred before or after he joined the conspiracy. United States v. Hickey, 360 F.2d 127, 140 (7th Cir.), cert. denied, 385 U.S. 928, 87 S.Ct. 284, 17 L.Ed.2d 210 (1966). He need not be a member of the conspiracy at its inception or throughout the conspiracy. Id. at 138. Read entered the conspiracy late, but he was responsible for the prior actions of all the conspirators once he knowingly contributed his efforts in furtherance of it. Id. at 140. Even if Spiegel and Swiger did not participate in the later events of the conspiracy, they were still responsible for its actions in furtherance of the initial goal. ²

We must view the evidence relating to the kickbacks in the light most favorable to the government. Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942). The evidence showed that the packaging scheme cost CMH less than expected. The jury could have easily inferred that the kickbacks were arranged so as to avoid suspicion should money be returned to CMH from Rose Packaging. There was also testimony that the kickbacks were for attorneys fees should the fraud be discovered. See tr. 790-91. Further, the jury was instructed that it could find that a defendant was a member of the conspiracy only with evidence of his own acts and declarations. None of the appellants took kickbacks. Evidence of this collateral activity was harmless in light of the overwhelming evidence that the appellants joined in a single conspiracy. United States v. Bastone, 526 F.2d 971, 980 (7th Cir. 1975), cert. denied, 425 U.S. 973, 96 S.Ct. 2172, 48 L.Ed.2d 797 (1976).

The evidence at trial amply supported the jury's verdict that the one conspiracy charged in the indictment existed. The government showed a common scheme, plan, or purpose among the defendants to manipulate Cenco's finances. United States v. Dalzotto, 603 F.2d 642, 644 (7th Cir.), cert. denied, 444 U.S. 994, 100 S.Ct. 530, 62 L.Ed.2d 425 (1979). Since we hold that the evidence amply supported the jury's finding of one conspiracy, there was no variance...